Non-resident UK property sales

There are specials rules that apply to UK property sales by non-residents. Since 6 April 2020 non-residents have needed to report and pay any non-resident Capital Gains Tax (CGT) due if they have sold or disposed of:

  • residential UK property or land (land for these purposes also includes any buildings on the land);
  • non-residential UK property or land;
  • mixed use UK property or land; or
  • rights to assets that derive at least 75% of their value from UK land (indirect disposals).

A CGT charge on the sale of UK residential property by non-UK residents was introduced in April 2015. Only the amount of the overall gain relating to the period after 5 April 2015 is chargeable to tax.

A UK non-resident that sells UK residential property needs to deliver a non-resident CGT (NRCGT) return and pay any CGT within 60 days of selling a relevant property. The return must be made whether or not there is any NRCGT to be paid. Even if there is a loss on the disposal and where the taxpayer is due to report the disposal on their self-assessment tax return.

There are penalties for failing to file the NRCGT return within the deadline as well as for failing to pay any tax due on time.

Source:HM Revenue & Customs | 10-06-2024


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Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

CGT Rollover Relief

Business Asset Rollover Relief also known as CGT Rollover Relief allows for deferral of Capital Gains Tax (CGT) on gains made when taxpayers sell or dispose of certain assets and use all or part of the proceeds to buy new business assets. The relief means that the tax on the gain of the old asset is postponed. The amount of the gain is effectively rolled over into the cost of the new asset and any CGT liability is deferred until the new asset is sold.

Where only part of the proceeds from the sale of the old asset are used to buy a new asset a partial rollover claim can be made. It is also possible to claim for provisional rollover relief where the taxpayer expects to buy new assets but has not done so when the returns are made to HMRC. Interestingly, rollover relief can also be claimed if taxpayers use the proceeds from the sale of the old asset to improve assets they already own. The total amount of rollover relief is dependent on the total amount reinvested to purchase new assets.

There are qualifying conditions to be met to ensure entitlement to any relief. This includes ensuring that new assets are purchased within three years of selling or disposing of the old asset (or up to one year prior to the sale). Under certain circumstances, HMRC has the discretion to extend these time limits. In addition, both the old and new assets must be used by your business and the business must be trading when you sell the old assets and buy the new assets. Taxpayers must claim relief within four years of the end of the tax year when they bought the new asset (or sold the old one, if that happened at a later date).

Source:HM Revenue & Customs | 27-05-2024


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Tax when transferring assets during divorce

When a couple is separating or is divorced it is unlikely that they are thinking about the tax implications of their actions. However, apart from the emotional stress, there are also tax issues that can have significant implications.

The Capital Gains Tax (CGT) rules that apply during separation and divorce changed for disposals that occur on or after 6 April 2023. These changes extended the period for separating spouses and civil partners to make "no gain/no loss transfers" up to three years after they cease living together. The changes also provide for an unlimited time if the assets are the subject of a formal divorce agreement. Prior to this change, the no gain/no loss treatment was only available in relation to disposals in the remainder of the tax year during which the separation occurs.

There are also special rules that apply to individuals who have maintained a financial interest in their former family home following separation and that apply when that home is eventually sold. This allows for private residence relief (PRR) to be claimed when a qualifying property is sold.

It is also important, during divorce proceedings, to make a financial agreement that is acceptable to both parties. If no agreement can be reached, then proceeding to court action to make a 'financial order' will usually be required.

Accordingly, the couple and their advisers should give proper thought to what will happen to the family home, any family businesses as well as the inheritance tax implications of separation and / or divorce.

Source:HM Revenue & Customs | 20-05-2024


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Tax-free home sales

In general, there is no Capital Gains Tax (CGT) liability created when a property used as the main family residence is sold. An investment property which has never been used as a home will not qualify. This relief from CGT is commonly known as private residence relief.

Taxpayers are entitled to full relief from CGT when all of the following conditions are met:

  1. The family home has been the taxpayers only or main residence throughout the period of ownership.
  2. The taxpayer has not sublet part of the house – this does not include having a lodger share your house.
  3. No part of the family home has been used exclusively for business purposes (using a room as a temporary or occasional office does not count as exclusive business use).
  4. The garden or grounds including the buildings on them are not greater than 5,000 square metres (just over an acre) in total.
  5. The property was not purchased just to make a gain.

If a property has been occupied at any time as an individual’s private residence, the last nine months of ownership are disregarded for CGT purposes – even if the individual was not living in the property when it was sold. The time period can be extended to thirty-six months under certain limited circumstances. There are also special rules for homeowners that work or live away from home.

Married couples and civil partners can only count one property as their main home at any one time.

Source:HM Revenue & Customs | 21-04-2024


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Post Transaction Valuation Checks

A Post Transaction Valuation Check (PTVC) can be requested from HMRC for an individual to work out a capital gains tax liability or for companies to calculate corporation tax liability on chargeable gains. The request for a PTVC should be made using the CG34 form. HMRC’s guidance says the form must be completed and sent to the address on the form at least three months before the relevant tax return filing date.

The PTVC is a service offered by HMRC to check valuations after a disposal has been made, including a deemed disposal following a claim that an asset has become of negligible value but before the completion of a self-assessment return. This service is available to all taxpayers, individuals, trustees and companies.

If HMRC agrees with the valuations set out they will not question the use of those valuations in the return, unless there are any important facts affecting the valuations that have not been disclosed. Agreement to the valuations does not always mean that HMRC agree the gain or loss. When the return is filed, HMRC will consider the other figures used. If an agreement cannot be reached, HMRC will suggest alternatives such as using specialist valuers.

Source:HM Revenue & Customs | 15-04-2024


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Spring Budget 2024 – CGT on disposals of residential property

A higher rate of Capital Gains Tax (CGT) applies to gains on the disposal of residential property if the gain falls into the higher rate band. In the Spring Budget, the Chancellor announced a reduction in the higher rate that exists for residential property from the current rate of 28% to 24% from 6 April 2024. These rates apply to higher rate taxpayers as well as to trustees and personal representatives. The lower rate that applies to basic rate taxpayers will remain unchanged at 18%.

It is expected that the 4% reduction in the 28% rate will help increase revenue for the Treasury as the new rate is expected to increase the number of transactions. The Chancellor joked that perhaps for the first time in history both the Treasury and the OBR have discovered their inner Laffer Curve!

Most people are aware that they may not have to pay CGT when they sell their qualifying residential property used wholly as a main family residence. However other sales of property that are not a principle private residence, will be subject to CGT.

This includes:

  • buy-to-let properties
  • business premises
  • land
  • inherited property

There are various reliefs available from CGT for the sale of qualifying business assets.

The 18% and 28% rates of CGT that apply to gains in respect of carried interest remain unchanged from 6 April 2024. These rates previously mirrored those for CGT on disposals of residential property.

Source:HM Treasury | 05-03-2024


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Letting part of your home

In general, there is no Capital Gains Tax (CGT) on a property which has been used as the family's main residence. This relief from CGT is commonly known as Private Residence Relief or PRR. However, where part of the home has been let out the entitlement to relief may be affected. Homeowners that let out part of their house may not benefit from the full PRR but can benefit from letting relief. Since April 2020, letting relief has been restricted to homeowners who live in their property and partly rent it out.

The maximum amount of letting relief due is the lower of:

  • £40,000;
  • the amount of PRR due; and
  • the same amount as the chargeable gain they made while letting out part of their home.

Worked example:

  • You rent out a large bedroom to a tenant that comprises 10% of your home.
  • You sell the property, making a gain of £75,000.
  • You're entitled to PRR of £67,500 on the part used as your home (90% of the total £75,000 gain).
  • The remaining gain on the part of your home that's been let is £7,500.

The maximum letting relief due is £7,500 as this is the lower of:

  • £40,000
  • £67,500 (the PRR due)
  • £7,500 (the gain on the part of the property that's been let)

There's no Capital Gains Tax to pay – the gain of £75,000 is covered by the £67,500 PRR and the £7,500 letting relief.

You are not considered to be letting out your home if either:

  • you have a lodger who shares living space with you; or
  • your children or parents live with you and pay you rent or housekeeping.
Source:HM Revenue & Customs | 18-02-2024


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Entitlement to Business asset disposal relief

Business Asset Disposal Relief (BADR) applies to the sale of a business, shares in a trading company or an individual’s interest in a trading partnership. Where this relief is available sellers can benefit from a 10% tax charge on exit from their business if BADR is available. When the relief is available Capital Gains Tax (CGT) of 10% is payable in place of the standard rate. 

There are a number of qualifying conditions that must be met in order to qualify for the relief. This includes that both of the following must apply for at least two years up to the date you sell your shares:

  • you are an employee or office holder of the company (or one in the same group); and
  • the company’s main activities are in trading (rather than non-trading activities) – or it is the holding company of a trading group.

There are also other rules depending on whether or not the shares are part of an Enterprise Management Incentive (EMI) scheme.

BADR used to be known as Entrepreneurs’ Relief before 6 April 2020. The name change did not affect the operation of the relief.

You can currently claim a total of £1 million in BADR over your lifetime. The £1m lifetime limit means you can qualify for the relief more than once. The lifetime limit may be higher if you sold assets before 11 March 2020.

Source:HM Revenue & Customs | 18-02-2024


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

business asset disposal relief guide by cigma accounting; london accountant; farringdon accountant

Navigating Business Asset Disposal Relief for UK Entrepreneurs

Navigating Business Asset Disposal Relief for UK Entrepreneurs

For UK entrepreneurs and business owners considering the sale of their business, shares in a trading company, or an interest in a trading partnership, understanding Business Asset Disposal Relief (BADR) is crucial. At CIGMA Accounting, we’re dedicated to guiding you through the intricacies of BADR to ensure you maximize your financial benefits.

What is Business Asset Disposal Relief?

Previously known as Entrepreneurs’ Relief prior to 6 April 2020, BADR offers a significantly reduced Capital Gains Tax (CGT) rate of 10% on qualifying assets, as opposed to the standard rate. This relief is available when exiting a business under specific conditions, providing substantial tax savings.

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Eligibility Criteria for BADR

To qualify for BADR, certain conditions must be met, including:

  1. For Business Owners:

    • You must be a sole trader or a business partner.
    • The business must have been owned by you for at least 2 years up to the sale date.
  2. For Shareholders:

    • You need to be an employee or office holder in the company.
    • The company must primarily be involved in trading activities.
    • For non-EMI shares, you must hold at least 5% of the shares and voting rights.
  3. Special Considerations for EMI Shares:

    • Shares must be acquired post-5 April 2013.
    • The option to buy them should have been granted at least 2 years before their sale.

The Financial Aspect: Calculating Your Tax

When claiming BADR, the calculation of your tax liability involves:

  • Summing up gains on qualifying assets and deducting any losses.
  • Applying the 10% tax rate to the remaining amount after your tax-free allowance.
  • For higher rate Income Tax payers, different rates apply for gains not covered by BADR (28% for residential property and 20% for other assets).
  • Basic rate taxpayers have varied rates based on their total taxable income and the nature of the gains.

Find peace of mind with Cigma Accounting, your trusted Wimbledon accountants. Get in touch for a free consultation!

Lifetime Limit and Claiming Process

An essential aspect of BADR is its £1 million lifetime limit, which can be higher for assets sold before 11 March 2020. Claims for BADR are made either through self-assessment tax return or by completing Section A of the Business Asset Disposal Relief helpsheet.

Professional Assistance from CIGMA Accounting

Navigating the complexities of BADR can be challenging.
At CIGMA Accounting, we offer expert guidance and support to ensure you meet all the qualifying criteria and maximize your relief. Our team is equipped to handle all aspects of your claim, from initial assessment to filing the necessary paperwork.

Reach out to us by completing this form and one of our staff members will get in touch within one business day. 


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Farringdon

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About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Hold-over gifts relief

Gifts Hold-Over Relief is a tax relief that effectively defers Capital Gains Tax (CGT) that may arise on a relevant gift. The relief can be claimed when assets are given away (including certain shares) or sold for less than they are worth to help benefit the buyer. The relief means that any gain on the asset is 'held-over' until the recipient of the gift sells or disposes of the gifted item(s). This is done by reducing the donee's acquisition cost by the amount of the held over gain.

The person gifting a qualifying asset is not subject to CGT on the gift. However, CGT may be payable where the asset is sold for less than it’s worth. Gifts between spouses and civil partners do not trigger capital gains. A claim for the relief must be made jointly with the person to whom the gift was made.

If you are giving away business assets, you must:

  • be a sole trader or business partner, or have at least 5% of voting rights in a company (known as your 'personal company'); and
  • use the assets in your business or personal company.

You can usually get partial relief if you used the assets only partly for your business.

If you are giving away shares, then the shares must be in a company that's either:

  • not listed on any recognised stock exchange; and
  • your personal company.

The company's main activities must be of a trading nature, for example providing goods or services, rather than non-trading activities like investment.

Source:HM Revenue & Customs | 13-11-2023


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Do you need to pay tax when you sell your home?

In general, there is no Capital Gains Tax (CGT) when you sell your home. This applies to a property which has been used as the main family residence. An investment property which has never been used as your own home does not qualify for relief. This relief from CGT is commonly known as Private Residence Relief.

Taxpayers are usually entitled to full relief from CGT where all the following conditions are met:

  1. The family home has been the taxpayers only or main residence throughout the period of ownership.
  2. The taxpayer has not let part of the house out – this does not include having a lodger.
  3. No part of the family home has been used exclusively for business purposes (using a room as a temporary or occasional office does not count as exclusive business use).
  4. The garden or grounds including the buildings on them are not greater than 5,000 square metres (just over an acre) in total.
  5. The property was not purchased just to make a gain.

If a property has been occupied at any time as an individual’s private residence, the last 9 months of ownership are disregarded for CGT purposes – even if the individual was not living in the property when it was sold. The time period can be extended to 36 months under certain limited circumstances. There are also special rules for homeowners that work or live away from home.

Married couples and civil partners can only count one property as their main home at any one time.

Source:HM Revenue & Customs | 30-10-2023


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Taxable gains on gifts

Gift Hold-Over Relief is a tax relief that effectively defers Capital Gains Tax (CGT). The relief can be claimed when assets are given away (including certain shares) or sold for less than they are worth to help benefit the buyer. The relief means that any gain on the asset is 'held-over' until the recipient of the gift sells or disposes of them. This is done by reducing the donee's acquisition cost by the amount of the held over gain.

The person gifting a qualifying asset is not subject to CGT on the gift. However, CGT may be payable when the asset is sold for less than it’s worth. Gifts between spouses and civil partners do not trigger capital gains. A claim for the relief must be made jointly with the person to whom the gift was made.

If you are giving away business assets, you must:

  • be a sole trader or business partner, or have at least 5% of voting rights in a company (known as your 'personal company'); and
  • use the assets in your business or personal company.

You can usually claim partial relief if you used the assets partly for your business.

If you are giving away shares, then the shares must be in a company that is either:

  • not listed on any recognised stock exchange; or
  • your personal company.

The company's main activities must be in trading, for example providing goods or services, rather than non-trading activities like investment.

Source:HM Revenue & Customs | 30-10-2023


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Tax when you sell property

The annual exempt amount applicable to Capital Gains Tax (CGT) is currently £6,000 and is set to be reduced to £3,000 from April 2024.

CGT is normally charged at a simple flat rate of 20% and this rate applies to most chargeable gains made by individuals. If taxpayers only pay basic rate tax and make a small capital gain, they may only be subject to a reduced rate of 10%. Once the total of taxable income and gains exceed the higher rate threshold, the excess will be subject to 20% CGT. 

A higher rate of CGT applies to gains on the disposal of residential property (apart from a principal private residence). The rates are 18% for basic rate taxpayers and 28% for higher rate taxpayers.

Most people are aware that they do not usually have to pay CGT when they sell their qualifying residential property used wholly as a main family residence. However, other sales of property that are not a principle private residence (PPR) will be subject to CGT.

These include:

  • buy-to-let properties
  • business premises
  • land
  • inherited property

The deadline for paying any CGT due on the sale of a residential property is 60 days. This means that a CGT return needs to be completed and a payment on account of any CGT due should be made within 60 days of the completion of the transaction. This applies to UK residents selling UK residential property where CGT is due.

There are various reliefs available from CGT for the sale of qualifying business assets.

Source:HM Revenue & Customs| 04-09-2023


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Business asset disposals taxed at 10%

Business Asset Disposal Relief (BADR) applies to the sale of a business, shares in a trading company or an individual’s interest in a trading partnership. Where this relief is available Capital Gains Tax (CGT) of 10% is payable in place of the standard rate. There are a number of qualifying conditions that must be met to benefit from this relief.

BADR used to be known as Entrepreneurs’ Relief before 6 April 2020. The name change did not affect the operation of the relief.

You can currently claim a total of £1 million in BADR over your lifetime. The £1m lifetime limit means you can qualify for the relief more than once. The lifetime limit may be higher if you sold assets before 11 March 2020.

Claims for BADR are made via your self-assessment tax return or by filling in Section A of the Business Asset Disposal Relief help sheet.

The deadline for claiming relief is as follows:

Tax year when you sold or closed your business

Deadline to claim BADR

2021-22   

31 January 2024

2022-23

31 January 2025

2023-24

31 January 2026

Source:HM Revenue & Customs| 04-09-2023


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Share buy-back clearance applications

Most payments a company makes to its shareholders, in respect of their shares, will be qualifying distributions and be subject to Income Tax.

However, if certain conditions are met, the payment can be treated as an exempt distribution. An exempt distribution is a payment that is treated as consideration for the disposal of shares and is subject to CGT.

When a company makes a purchase of its own shares, any excess paid over the amount of capital originally subscribed for the shares is usually treated as a distribution (a dividend). However, there are special provisions that enable an unquoted trading company or an unquoted holding company of a trading group to undertake a purchase of its own shares without making a distribution.

To check out the tax implications of an intended buy back, a clearance application may be made to HMRC. Under this procedure a company wishing to make a purchase of its own shares can obtain advance confirmation from HMRC that the distribution arising will be an exempt distribution.

Broadly there are two situations where a payment on the purchase by a company of its own shares is not treated as a distribution:

  • the company must be an unquoted trading company; and
  • either Condition A: purchase benefiting a company’s trade or Condition B: purchase in connection with Inheritance Tax liability must be met.
Source:HM Revenue & Customs| 28-08-2023


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Capital Gains Tax and trusts

A trust is an obligation that binds a trustee, an individual or a company, to deal with the assets – such as land, money and shares – held by the trust. The person who places assets into a trust is known as a settlor and the trust is for the benefit of one or more 'beneficiaries'.

The trustees make decisions about the assets in the trust. These assets are to be managed, transferred or held back for the future use of the beneficiaries. Trustees are also responsible for reporting and paying tax on behalf of the trust. A trust needs to be registered with HMRC if it pays or owes tax. CGT may be payable when assets are placed into or taken out of a trust.

If assets are placed into a trust, tax is paid by either the person selling the asset to the trust or the person transferring the asset (the 'settlor').

If assets are taken out of a trust, the trustees usually have to pay tax if they sell or transfer assets on behalf of the beneficiary. However, the rules are complex and there are different types of trusts that need to be considered, for example, bare trusts or non-UK resident trusts.

Most trusts have an annual exemption from CGT, currently £3,000 (2022-23: £6,150). There is a higher limit of £6,000 if the beneficiary is vulnerable, a disabled person or a child whose parent has died.

Source:HM Government| 13-08-2023


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Connected persons for tax purposes

Breaking Down Connected Persons for UK Capital Gains Tax

When it comes to Capital Gains Tax (CGT) in the UK, understanding the concept of “connected persons” is essential. However, navigating the statutory definition set out in Section 286 of the Taxation of Chargeable Gains Act (TCGA) 1992 can be complex.

In this article, we’ll provide a clear and comprehensive guide to connected persons for CGT purposes, including insights from HMRC’s internal guidance. If you’re a taxpayer or an investor, it’s crucial to grasp this concept to ensure compliance with the tax regulations and make informed financial decisions.

What are Connected Persons for Capital Gains Tax?

According to Section 286 of the TCGA 1992, a person is considered connected with an individual for CGT purposes if they fall under any of the following categories:

  1. Spouse or Civil Partner: Any person who is legally married to the individual or in a registered civil partnership with them is automatically considered connected.

  2. Relatives: Connection also extends to relatives, including brothers, sisters, ancestors (parents, grandparents, etc.), or lineal descendants (children, grandchildren, etc.) and their respective spouses or civil partners.

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Notable Exceptions for connected persons

It’s important to note that the term “relative” does not encompass all family relationships. Specifically, nephews, nieces, uncles, and aunts are not considered connected persons for CGT purposes.

Furthermore, there are certain scenarios where individuals are excluded from being connected persons, as outlined in HMRC’s internal guidance:

  1. Widows/Widowers and Surviving Civil Partners: Unless a connection can be established by means not involving the deceased spouse or civil partner, widows, widowers, and surviving civil partners of deceased persons are not considered connected for CGT.

  2. Dissolution of Civil Partnership or Divorce: Following the dissolution of a civil partnership or a divorce, individuals in addition to the former civil partner or spouse may cease to be connected for CGT purposes.

Need Assistance from an Accountant?

Being aware of who is considered a connected person can impact various transactions, such as property transfers, gifts, or sales, and may result in different tax treatment. To ensure compliance with the tax regulations and make informed financial decisions, seeking guidance from a reputable UK accounting firm with expertise in CGT matters is highly recommended.

If you require professional assistance with understanding connected persons or any other tax-related queries, our team of experienced accountants at CIGMA Accounting is here to help. Contact us today for expert advice tailored to your specific needs.


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Farringdon

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About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

When you don’t have to pay Capital Gains Tax

Learn When you don’t have to pay Capital Gains Tax

Understanding Capital Gains Tax (CGT) can be tricky, but it’s really important. In this article, we’ll break down when you might not have to pay it. Whether it’s giving assets to your spouse, going through a divorce, or donating to a charity, this info could help you save on taxes.

Transfer of Assets to Spouse or Civil Partner

A commonly misunderstood aspect of Capital Gains Tax in the UK is its application in the transfer of assets between spouses or civil partners. Usually, there is no Capital Gains Tax to be paid on such transfers. However, even though you might not have to pay CGT immediately, the taxman considers this a disposal for CGT purposes. The gain or loss, when the asset is eventually sold, will be calculated from the point the original spouse or civil partner owned it.

Require accounting services?

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Separation and Divorce: Navigating the CGT Maze

The rules change somewhat for couples undergoing separation or divorce. Recent amendments effective from 6th April 2023 allow separating spouses and civil partners a period of up to three years after they cease cohabiting to make no gain/no loss transfers. Furthermore, there’s an unlimited timeframe for assets subject to a formal divorce agreement.

Previously, the no gain/no loss treatment was applicable only for disposals during the tax year in which separation occurred. If a transfer doesn’t qualify for relief retrospectively, the asset must be valued at the date of the transfer, and the entity making the transfer is liable for any gain or loss.

Gifting Assets to Charities

For those considering contributing to charitable organisations, assets gifted to charities generally don’t attract Capital Gains Tax. However, if an asset is sold to a charity for more than its purchase price but less than its market value, CGT may be due. In this case, the gain would be calculated based on the price the charity paid, not the market value.

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About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Tax on property you inherit

Tax implications when inheriting property

Inheriting property can be an emotionally charged and complex process. Not only do you have to deal with the emotional turmoil that comes with losing a loved one, but you also need to navigate the complicated world of tax laws associated with your inheritance. In this comprehensive guide, we will shed light on the UK Inheritance Tax (IHT), Stamp Duty, Income Tax, and Capital Gains Tax related to inherited property, and we will discuss your responsibilities in these matters.

Understanding Inheritance Tax (IHT)

The first tax-related aspect you need to consider when you inherit property is the Inheritance Tax. According to HM Revenue and Customs (HMRC), the estate of the deceased individual is usually liable to pay any IHT due. This means that as a beneficiary, you’re not generally expected to pay tax on the inheritance you receive. The IHT is deducted from the estate before the distribution of any cash or assets to the beneficiaries.

IHT is currently payable at a rate of 40% on death and 20% on lifetime gifts. However, there’s a potential reduction on some assets if the deceased leaves 10% or more of the ‘net value’ of their estate to a charity. It’s a testament to the UK’s commitment to charitable giving and can be a worthwhile consideration when estate planning.

Stamp Duty, Income Tax, and Capital Gains Tax

You’ll be relieved to know that when you inherit a property, you are generally not liable for Stamp Duty. Likewise, Income Tax or Capital Gains Tax are not immediately applicable upon receiving your inheritance.

That said, there are situations where you may need to pay Income Tax or Capital Gains Tax. For instance, you would need to pay Capital Gains Tax on any profit earned from an increase in property value if you decide to sell the property after the date of inheritance. Additionally, you would also be liable to Income Tax on any rental income generated from the inherited property.

If you inherit a property and this means you now own two properties, it’s crucial to inform HMRC which property is your primary residence within two years. This information is significant as it influences the tax implications if and when you decide to sell one of the properties.

Navigating Through The Inheritance Process

HMRC would usually make contact if there were any IHT due from you. However, if the property is held in a trust, special rules apply.

Inherited property can indeed raise many questions concerning tax liabilities. This complexity underscores the importance of getting expert advice to ensure you navigate the process appropriately, understand your tax obligations, and avoid any unwelcome surprises.

At CIGMA Accounting, we are dedicated to helping our clients understand and manage the potential tax implications that come with inheriting property. Our team of experienced tax advisors is here to guide you every step of the way.

Contact us today to learn more about our services and how we can support you in understanding and navigating the tax implications of inherited property. Our mission is to make your tax matters as straightforward as possible, providing you with peace of mind in what may be a challenging time.


Wimbledon Accountant

165-167 The Broadway

Wimbledon

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SW19 1NE

Farringdon Accountant

127 Farringdon Road

Farringdon

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EC1R 3DA



About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Working out capital gains

As with the Income Tax personal allowances, taxpayers have an annual exempt amount for Capital Gains Tax (CGT) which is forfeited if not used. The annual exemption for individuals in 2023-24 was reduced to £6,000 (from £12,300) and is set to be further halved to £3,000 from April 2024. A married couple each have a separate exemption. This also applies to civil partners who are treated in the same way as married couples for CGT purposes. 

To work out capital gains for a tax year, you should take the following steps:

  1. Work out the gain for each asset (or your share of an asset if it’s jointly owned). Do this for the personal possessions, shares or investments, UK property or business assets you have disposed of in the tax year.
  2. Add together the gains from each asset.
  3. Deduct any allowable losses.

If the total gains are less than the relevant annual exempt amount, then no CGT is due. Taxpayers still need to report gains in their tax return if both of the following apply. The total amount they sold the assets for was more than 4 times their allowance and they are registered for Self-Assessment.

Married couples and civil partners should ensure that assets sold at a gain are either jointly owned or that each partner utilises their annual exempt amount wherever possible. Any unused part of the annual exempt amount cannot be carried forward and is forfeited if unused in the current tax year.

CGT is usually charged at a simple flat rate of 20%. If you only pay basic rate tax and make a small capital gain, they may be subject to a reduced rate of CGT of 10%. Once the total of taxable income and gains exceed the higher rate threshold, the excess will be subject to 20% CGT. A higher rate of CGT (8% supplement) applies to gains on the disposal of chargeable residential property.

If you have sold or are planning to sell any assets in the current tax year it is important to ensure that you take full advantage of the annual CGT exemption and arrange your affairs to ensure the optimum CGT position. For example, capital losses are deducted from gains before net gains are calculated. Crystallising a loss that will waste the annual exemption should therefore be avoided.

Source:HM Revenue & Customs| 03-07-2023


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Selling overseas property

UK CAPITAL GAINS TAX WHEN SELLING OVERSEAS PROPERTY

Are you a UK resident contemplating selling an overseas property? You need to understand the implications of Capital Gains Tax (CGT) on your transaction. This piece will guide you through what you need to know about CGT, your potential liabilities, and any possible exemptions or reliefs.

In the 2023-24 tax year, UK residents are liable for Capital Gains Tax when selling overseas property at a profit. A change in the annual exempt amount means you can exclude the first £6,000 of gains from CGT, down from £12,300 in the previous year.

You can click here to read our full guide to Capital Gains Tax in the UK.

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Capital gains rates and double taxation

When it comes to the rates of CGT, it’s usually a flat 20% on most gains for individuals. However, basic rate taxpayers with modest capital gains might qualify for a 10% rate. But beware, if your combined taxable income and gains cross the higher rate threshold, anything above this level is taxed at 20%.

When dealing with the disposal of residential property that’s not your primary residence, higher rates apply. Basic rate taxpayers face an 18% CGT, while higher-rate taxpayers have a 28% duty.

One critical point to remember is that you might also owe tax in the country where the property is located. But don’t worry – relief from double taxation could be available, thanks to various tax agreements between the UK and other countries. Dual residents can also seek additional guidance to understand their tax obligations better.

Do remember, there are special regulations if you’re a UK resident, but your permanent home (domicile) is overseas. To avoid any unexpected tax surprises, it’s always best to consult with tax professionals.

If you’re navigating the complexities of selling overseas property and Capital Gains Tax, our accounting experts are here to help. Contact us today for personalised advice and guidance tailored to your situation.

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Wimbledon Accountant

165-167 The Broadway

Wimbledon

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Farringdon Accountant

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About the Author
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Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

private residence relief; london accountant; capital gains tax when selling your home

Private Residence Relief: minimise tax when selling your home

Private Residence Relief: minimising tax when selling your home

Have you ever considered selling your home? If yes, you’ve probably wondered about the tax implications. Specifically, there might be one tax you’ve heard about: Capital Gains Tax (CGT). In this article, we aim to clarify what this tax is and how Private Residence Relief can potentially protect you from it.

If you need assistance with your tax and accounting, whether it is personal or corporate, CIGMA Accounting is here to help. Visit our Contact Page to set up a free consultation with our CIMA-registered professionals.

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What is Capital Gains Tax (CGT)?

Capital Gains Tax is a tax on the profit or gain you make when you sell or dispose of an asset that has increased in value. This applies to finance assets, investments like art, and company shares. In the context of property, if you sell a house that is not your main home, you may need to pay CGT on the profit you make.

What is Private Residence Relief?

Private Residence Relief, also known as Principal Private Residence Relief (PPR), is a valuable tax relief that can significantly reduce, or even eliminate, CGT when you sell your main family home. This relief recognises that your primary residence should not be subject to the same tax burdens as other investment assets.

Who Qualifies for Private Residence Relief?

There are specific conditions you need to meet for Private Residence Relief. According to the HMRC, the following conditions must be satisfied:

  1. Main Residence: The property must have been your only or main residence throughout the period of ownership.

  2. No Rental: You must not have let out part of the house (having a lodger is not considered letting out a part).

  3. Business Use: No part of your home should have been used exclusively for business purposes. However, using a room as a temporary or occasional office doesn’t count as exclusive business use.

  4. Property Size: The garden or grounds including the buildings on them should not be greater than 5,000 square metres (approximately an acre) in total.

  5. Profit Motive: The property must not have been purchased solely to make a financial gain.

If you meet all these conditions, you may be entitled to full Private Residence Relief on CGT.

Final Period Exemption

Even if you move out of your home, HMRC provides a Final Period Exemption. Under this provision, the last nine months of ownership are disregarded for CGT purposes. This means you might still qualify for Private Residence Relief even if you weren’t living in the property when it was sold. Under certain limited circumstances, this time period can be extended to 36 months.

Private Residence Relief for Married Couples and Civil Partners

It’s important to note that for married couples and civil partners, only one property can be counted as the main home at any one time for the purposes of Private Residence Relief.

In summary, understanding Private Residence Relief can save you significant sums of money when selling your home. However, it’s always wise to consult with a tax advisor or expert who understands your specific circumstances to ensure you maximise any tax relief you are entitled to.

Our CIMA-registered professionals at CIGMA Accounting provide affordable accounting services to clients across the UK and abroad. Get in contact via the form below, or via our Contact Page, to organise a free consultation.


Wimbledon Accountant

165-167 The Broadway

Wimbledon

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SW19 1NE

Farringdon Accountant

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Farringdon

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About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Capital Gains Tax Gift Hold-Over Relief

Gift Hold-Over Relief is a tax relief that results in a deferral of Capital Gains Tax (CGT). The relief can be claimed when assets are given away (including certain shares) or sold for less than they are worth to help benefit the buyer. The relief means that any gain on the asset is 'held-over' until the recipient of the gift sells or disposes of them. This is done by reducing the donee's acquisition cost by the amount of the held over gain.

The person gifting a qualifying asset is not subject to CGT on the gift. However, CGT may be payable where the asset is sold for less than it’s worth. Gifts between spouses and civil partners don’t trigger capital gains. A claim for the relief must be made jointly with the person to whom the gift was made.

If you are giving away business assets, you must:

  • be a sole trader or business partner, or have at least 5% of voting rights in a company (known as your 'personal company'); and
  • use the assets in your business or personal company.

You can usually get partial relief if you used the assets only partly for your business.

If you are giving away shares, then the shares must be in a company that is either:

  • not listed on any recognised stock exchange; or
  • your personal company.

The company's main activities must be of a trading nature, for example, providing goods or services rather than non-trading activities like investment.

Source:HM Revenue & Customs| 19-06-2023


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Using Capital Gains Tax losses

Maximising Your Capital Gains Tax Benefits: Leveraging Losses

Are you aware that selling an asset at a loss can have its advantages when it comes to capital gains tax (CGT)? In this blog post, we’ll explore the concept of allowable losses and how they can be used to your benefit. By understanding the rules and options surrounding deducting losses and carrying them forward, you can optimize your tax strategy and potentially reduce your overall tax liability.

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Understanding Allowable Losses

When you sell an asset for less than its original purchase price, it results in a capital loss. Typically, if the asset would have been subject to CGT had you made a gain, the resulting loss is considered an allowable deduction. These allowable losses are automatically deducted from gains in the same tax year without the need for a specific claim.

Utilising unused capital Losses

If your total taxable gain exceeds the tax-free allowance, you have the opportunity to deduct any unused losses from previous tax years. This means that losses that couldn’t be set against gains in the current year can be carried forward to offset future gains. However, it’s important to note that you can only utilize losses brought forward if your net gains exceed the annual CGT exempt amount for the year.

optimising deductions

In most cases, you have the flexibility to deduct allowable losses and the annual exempt amount in the most advantageous manner for your situation. This typically involves offsetting losses against gains that are subject to the highest tax rate. By carefully planning and strategically allocating losses, you can potentially minimize your CGT liability.

time limits for loss claims

It’s worth mentioning that you don’t have to claim losses immediately after the sale of the asset. In fact, you have a window of up to four years after the end of the relevant tax year to make a claim for allowable losses. This allows you some additional time to evaluate your financial situation and determine the most optimal approach for utilizing your losses.

Need Assistance from an Accountant?

When it comes to capital gains tax, understanding how to leverage allowable losses is a valuable strategy. By taking advantage of these deductions, you can potentially reduce your tax liability and optimise your overall financial position. Remember to consult with a tax professional or financial adviser for personalised guidance based on your specific circumstances.

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Wimbledon Accountant

165-167 The Broadway

Wimbledon

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Farringdon Accountant

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About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

how to claim double taxation relief in the UK; london accountant

Double Taxation: How to Claim Relief for Foreign Income

Double Taxation: How to Claim Relief for Foreign Income

If you earn income from a foreign source, you may find yourself in a situation where you’re taxed twice — both by the country where your income originates and by the UK. However, the good news is that you can often claim tax relief to recover some or all of the additional tax you’ve paid. In this blog post, we’ll explore the process of claiming relief for foreign income in an easy-to-understand manner.

This post explores double taxation for UK residents. There is a separate process for UK non-residents who are being taxed on their UK income by the foreign country in which they reside.

 

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Claiming Relief Before Being Taxed on Foreign Income

In some cases, you may need to apply for tax relief in the country where your income is generated before it is taxed. This is typically applicable when:

  1. Your income is exempt from foreign tax but is taxed in the UK (e.g., most pensions).
  2. It is required by the double-taxation agreement between the two countries.

To initiate the process, you should contact the foreign tax authority and request the appropriate form. If there is no form available, you can apply by letter. Before applying, you must prove your eligibility for tax relief. You can do this by either completing the form and sending it to HM Revenue and Customs (HMRC), who will verify your residency status and return the form to you, or by including a UK certificate of residence if you are applying by letter. Once you have obtained proof of eligibility, you should send the form or letter to the foreign tax authority.

Claiming Relief After Paying Tax on Foreign Income

If you have already paid tax on your foreign income, you can generally claim Foreign Tax Credit Relief when reporting your overseas income in your tax return. The amount of relief you receive depends on the UK’s double-taxation agreement with the country where your income originates.

Even if there is no specific agreement in place, you will usually still be eligible for relief unless the foreign tax does not correspond to UK Income Tax or Capital Gains Tax. If you’re unsure about whether you qualify for relief or need assistance with double-taxation relief, don’t hesitate to reach out to us at CIGMA Accounting for assistance.

Determining the Amount of double taxation Relief

It’s important to note that the full amount of foreign tax paid may not be refunded to you. The relief you receive will be reduced if:

  1. The double-taxation agreement specifies a lower relief amount.
  2. The income would have been taxed at a lower rate in the UK.

HMRC provides guidance on how Foreign Tax Credit Relief is calculated, including special rules for interest and dividends, which can be found in their ‘Foreign notes’ section. However, it’s essential to remember that you cannot claim this relief if the UK’s double-taxation agreement requires you to claim tax back from the country where your income originates.

Capital Gains Tax

When it comes to Capital Gains Tax, typically, you’ll pay tax in the country where you are a resident and be exempt from tax in the country where the capital gain occurs. Usually, you won’t need to make a claim for relief.

However, there is an exception for UK residential property. Regardless of your residency status, you are required to pay Capital Gains Tax on any gains made from UK residential property.

When to Claim Capital Gains Relief

The rules for claiming relief vary depending on the nature of the asset generating the gain. If the asset cannot be taken out of the country, such as land or a house, or if it is used for business purposes in that country, you’ll need to pay tax in both countries and seek relief from the UK.

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About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

the best way to pay yourself as a company director in the UK; london accountant; dividends taxation; income tax

How to best pay yourself as a UK company director

As a new company director in the UK, you are likely wondering how to best pay yourself through your company. You have several options for transferring company profits into personal income, including salaries, dividends, and investments. This post outlines the pros and cons of each, and gives you the information you will need to make your income as tax efficient as possible.

 

How can a company director pay themselves?

Company directors are considered employees of the company and so take a salary which is subject to income tax. Directors can also pay themselves using dividends, which are a common method of distributing profits to shareholders (which includes directors).

Salaries and dividends are subject to different tax rates, tax-free allowances, and National Insurance obligations, which we break down below.

 

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What is the difference between salary and dividends?

Dividends are a way for companies to distribute a portion of their profits to their shareholders. As a director, you can choose to pay yourself through dividends instead of a salary. Dividends are typically paid out after the company has paid its taxes and can be a tax-efficient way to receive income.

However, there are some basic rules to follow. Firstly, your company must have sufficient profits to pay dividends, and you should keep records of these profits. Secondly, dividends must be declared and approved by the company’s shareholders. Lastly, dividends cannot be paid if the company is insolvent or if the payment would render it insolvent.

When it comes to tax purposes, it’s important to find the right balance. Dividends are subject to lower tax rates than salaries. You also do not need to pay National Insurance Contributions on dividend income, which you would have to do so on any salary income.

Lastly, as is also the case with personal income tax, a certain amount of dividends you receive is tax-free.

You can read our full guide to dividends to learn more.

 

What is the most efficient way for a company director to pay themselves?

From the explanation above, it should be clear that paying yourself efficiently as a company director involves balancing tax-free personal allowances and differing tax obligations.

The table below should be very helpful in outlining these differences between salary and dividends.

company director pay; dividends tax; income tax; london accountant

At the most basic level, directors clearly want to use all of their available tax-free personal allowance. That means taking at least £12,570 as salary and £1,000 as dividends.

It is important to note that once you reach the Higher Rate income bracket, your personal allowance amount begins to decrease. And in the Additional Rate bracket, there is zero tax-free personal allowance.

An important factor that is left out of the above table is the added cost of National Insurance Contributions on salary income. National Insurance Contributions must be paid both by the employee and employer. The basic NIC rate for employees is currently 12% of earnings, and an additional 13.8% of earnings to be paid by the employer. These are basic figures, see our guide to National Insurance for a detailed understanding.

As a company director, you will effectively bear both of these costs, making salary income even less appealing when compared to dividends. A common strategy is to take enough of a salary that the director qualifies for state benefits such as the State Pension, but that does not incur NIC payments.

Under most circumstances, dividends will be more tax efficient than salary income, though how easy it is to distribute dividends will depend on the structure of your company and its shareholders.

Using investments as tax-efficient income sources

It is also important to take advantage of any other tax free allowances that HMRC makes available. An example of this would be transferring company profits into investments, rather than personal salary. In that way, you could take advantage of the tax-free capital gains allowance of £6,000.

Trusts are another way of accomplishing this, and which have their own tax-free capital gains allowance of £3,000.

It is also essential to consider how increased income may push you into a new tax band, and create much higher tax liability. For example, the dividend tax rate jumps from 8.75% in the first income bracket to 33,75% in the second.

As such, it may be more profitable in the long term to reinvest money into business (tax-free), or into other investments, rather than taking extra personal income that pushes you into a higher tax band.

 

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Wimbledon Accountant

165-167 The Broadway

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Farringdon Accountant

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About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Clearance to secure exempt distribution status

Most payments a company makes to its shareholders, in respect of their shares, will be qualifying distributions and may be subject to Income Tax.

If certain conditions are met, the payment can be treated as an exempt distribution. An exempt distribution is a payment that is not treated as a distribution. It is treated as consideration for the disposal of shares and is subject to CGT.

When a company makes a purchase of its own shares, any excess paid over the amount of capital originally subscribed for the shares is usually treated as a distribution. However, there are special provisions that enable an unquoted trading company or an unquoted holding company of a trading group to undertake a purchase of its own shares without making a distribution.

In order to do this, a clearance application may be made. Under this procedure a company wishing to make a purchase of its own shares can obtain advance confirmation from HMRC that the distribution arising will be an exempt distribution.

If the application is approved, the payment is treated as consideration for the disposal of the shares in the hands of the seller and subject to CGT. Where entrepreneurs' relief is available, CGT of 10% is payable in place of the standard rate. There are a number of qualifying conditions that must be met in order to qualify for the relief. Where the necessary conditions are met a company purchase of own shares can be a tax efficient way of exiting a business.

Source:HM Revenue & Customs| 22-05-2023


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Capital Gains during separation and divorce

The Capital Gains Tax (CGT) rules that apply during separation and divorce changed for disposals that occur on or after 6 April 2023. These changes extended the period for separating spouses and civil partners to make no gain/no loss transfers for up to three years after they cease to live together. The new rules also provide for an unlimited time if the assets are the subject of a formal divorce agreement. Previously, the no gain/no loss treatment was only available in relation to any disposals in the remainder of the tax year in which the separation happens.

The government also introduced special rules that apply to individuals who have maintained a financial interest in their former family home following separation, and that apply when that home is eventually sold. This will allow for private residence relief (PRR) to be claimed when a qualifying property is sold.

These changes should ensure that most separating couples have enough time to sort out their affairs without a possible charge to CGT.

Source:HM Revenue & Customs| 15-05-2023


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Letting relief

In general, there is no Capital Gains Tax (CGT) due on the disposal of a property which has been used as the main family residence. This relief from CGT is commonly known as 'private residence relief'. However, where all or part of the home has been rented out the entitlement to relief may be affected. Homeowners that let all or part of their house may not benefit from the full private residence relief, but may benefit from letting relief.

Homeowners that lived in their home at the same time as tenants, may qualify for letting relief on gains they make when they sell the property. Letting relief does not cover any proportion of the chargeable gain made while the home is empty.

The maximum amount of letting relief due is the lower of:

  • The amount of private residence relief due
  • £40,000
  • The amount of gain you've made on the let part of the property

Worked example:

  • You used 40% of your house as your home and let out the other 60%.
  • You sell the property, making a gain of £60,000.
  • You're entitled to private residence relief of £24,000 on the part used as your home (40% of the £60,000 gain).
  • The remaining gain on the part of your home that's been let is £36,000.

The maximum letting relief due is £24,000 as this is the lower of:

  • £24,000 (the private residence relief due)
  • £40,000
  • £36,000 (the gain on the part of the property that's been let)

The letting exemption is only available when the conditions outlined above apply, most importantly that the property owner(s) were / are in shared occupancy with a tenant. The letting relief was more generous prior to 6 April 2020, when the requirement for the property owner to live in the property at the same time as their tenants did not apply. 

Source:HM Revenue & Customs| 10-04-2023


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Guide to Dividends, including UK tax rates and dividend allowances; London accountant

Guide to dividends: UK tax and allowances

Dividends are a way for limited companies to distribute profits to their shareholders. Dividends are a common way for businesses to reward their investors, and they are subject to certain regulations and different rates of tax.

When can dividends be paid out?

Dividends can only be paid out of a company’s profits, and only if the company’s directors decide to do so. Before any dividends are paid, the company must ensure that it has enough distributable profits to cover the payment. Distributable profits are the company’s accumulated profits that are available for distribution to shareholders after all of its liabilities have been accounted for.

It is important to note that if a company pays a dividend that is not covered by its distributable profits, it can lead to severe legal consequences for the company directors. Therefore, it is crucial that companies follow the rules surrounding the distribution of dividends.

How often can dividends be paid out?

There is no set schedule for paying dividends in the UK, and companies can pay them out at any time as long as they have enough distributable profits to cover the payment. Some companies pay dividends annually, while others pay them quarterly or bi-annually.

However, it is worth noting that a company must maintain a balance between retaining profits for growth and paying dividends to shareholders. A company must not pay excessive dividends at the expense of retaining sufficient funds to meet its future obligations.

Who decides how to calculate dividends?

When a limited company decides to pay dividends to its shareholders, the amount that each shareholder receives is based on the number of shares they hold in the company. For example, if a company has 1,000 shares in issue, and a shareholder owns 100 of those shares, they will receive 10% of the total dividend payment.

The amount paid out in dividends is typically decided by the company’s directors, who will consider a number of factors such as the company’s financial performance, cash reserves, and future growth plans. The directors will then propose a dividend payment to the company’s shareholders, who will need to vote on the proposal at a general meeting.

If the shareholders approve the proposal, the dividend payment will be made to each shareholder based on the number of shares they hold. It is worth noting that if a shareholder owns more than one class of shares in a company, they may be entitled to different dividend payments for each class of share they hold.

What is the tax-free dividend allowance?

Since 2016, there has been a tax-free dividend allowance, allowing you to earn up to the total allowance without paying any tax. Until this year, the tax-free dividend allowance had been £2,000 since 2019. However, this was lowered to £1,000 for the 2023/24 financial year and will fall again to £500 in 2024.

How are dividends taxed in the UK?

Dividends are subject to income tax, but the amount of tax payable depends on the amount of dividend income received and the individual’s total income.

Dividend income above the £1,000 tax-free allowance is then taxed according to your income tax band. Add your total dividend income to the rest of your taxable income to work out your tax band. You will then pay that rate of tax on your dividend income that exceeds the tax-free allowance.

Tax Band

Income Range

Income Tax Rate

Dividends Tax Rate

Personal Allowance

First £12,570

0

0

Basic Rate

£12,571 to £50,270

20%

8.75%

Higher Rate

£50,271 to £125,140

40%

33.75%

Additional Rate

Over £125,140

45%

39.35%

It is worth noting that the tax on dividends is paid through self-assessment, and the responsibility for paying the tax falls on the individual receiving the dividend income, not the company paying the dividend.

In addition to the amount paid out in dividends, shareholders may also benefit from an increase in the value of their shares if the company’s performance improves. This increase in value is known as a capital gain and is subject to capital gains tax if the shareholder sells their shares.

BOTTOM LINE

In summary, dividends are a way for limited companies in the UK to distribute profits to their shareholders. Companies can pay dividends at any time as long as they have enough distributable profits to cover the payment. Dividends are subject to income tax, and the tax payable depends on the amount of dividend income received and the individual’s total income.

As always, it is crucial to seek professional advice if you are unsure about the rules and regulations surrounding dividends. We at CIGMA Accounting would be happy to assist you or your business, wherever you may be located in the UK. Fill out the form below and a consultant will be in touch within one business day.

You can also find our telephone numbers here.




About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.